Are Premium Bond winnings taxable?

Full answer

Premium Bonds are a savings product run by National Savings & Investments (NS&I), backed 100% by HM Treasury. Instead of paying interest, they enter every £1 bond into a monthly draw for tax-free prizes from £25 up to two £1 million jackpots. The annual prize-fund rate from December 2024 is 4.00% — but this is a probability rate, not a guaranteed return; the median holder earns less. Because prizes are random and not "interest", they fall outside Income Tax, CGT and Inheritance Tax planning (though the bonds themselves form part of your estate at face value when you die). Maximum holding is £50,000 per person. Worked example: with £50,000 held all year, the expected average prize win is roughly £2,000 (4%) — entirely tax free, versus £2,000 of taxable savings interest costing a higher-rate taxpayer £800 in Income Tax. The PSA (£1,000 basic, £500 higher, £0 additional) is therefore irrelevant for Premium Bonds. Children under 16 must have bonds held in their name by a parent or guardian; winnings are still tax free. Universal Credit and means-tested benefits do count Premium Bond holdings as capital. Prizes can be reinvested automatically or paid directly into a UK bank account.

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